Eurozone integration yes, but not for here and now

17th August 2011, 0 comments

French and German calls for a new economic "government" for the eurozone may have left markets underwhelmed, but there is no mistaking the direction of ever-closer integration, analysts said Wednesday.

Nonetheless, deep-seated doubts remain as to how much impact Chancellor Angela Merkel and President Nicolas Sarkozy's latest initiative will have on the debt crisis that eurozone currently faces.

The markets were disappointed at their failure to back eurobonds -- joint bonds that would reduce borrowing rates for weaker states as they would be guaranteed by the entire eurozone.

Likewise, Merkel and Sarkozy's refusal to increase the firepower of the 440-billion-euro European Financial Stability Facility, the rescue fund already in play for bailouts of Ireland, Portugal and now the second Greek emergency package agreed at a July 21 emergency eurozone summit.

But their call to schedule bi-annual eurozone-only summits under the chairmanship of current EU president Herman Van Rompuy institutionalises the two-speed European Union that has been a reality since the euro was created in 1999.

"It's not eye-poppingly original, because it institutionalises an existing practice," said Christian Parisot, an economist with French investment managers Aurel, referring to three such emergency summits since the financial crisis first broke late-2008.

"But you can still say it is an extra step towards greater cross-border coordination of economic policy," he underlined.

"Making this set-up formal will give it more weight, more visibility," added European Commission spokesman Olivier Bailly.

Not one without questions, including the evolving role of the Eurogroup of finance ministers from the currency area, which presently meets on a monthly basis throughout the political season and which is chaired by Luxembourg Prime Minister Jean-Claude Juncker.

Sarkozy and Juncker have had a chequered relationship since recession first bit, and it was unclear what the French president and Merkel meant in their letter to Van Rompuy when they called for a "reinforced Eurogroup," without giving any details.

Bruegel Institute analyst Jean Pisani-Ferry, a seasoned EU-watcher, told AFP that the big questions of economic reform "are invariably subjects on which heads of state and government must decide."

While Juncker carries that title, his counterparts in the existing Eurogroup do not -- and Pisani-Ferry says the move to install Van Rompuy is therefore a snub.

"Van Rompuy has already put the economy at the forefront of his agenda as head of the European Council," he said. "Putting him at the head of the eurozone means he will have to be given the space to do his job."

Even broadly favourable observers were inclined to dismiss his potential impact, much like when Van Rompuy first came into office.

"He will remain a prisoner of the indecision and incapacity of the big states and their leaders," said an editorial in Belgian daily Le Soir, which said "radical measures [are] required to get the eurozone out of this storm."

Former Belgian prime minister Guy Verhofstadt, a senior European Parliament figure, insists a "true" economic government "must have tools at its disposal."

As battles loom over a proposal by Merkel and Sarkozy to make EU investment funding conditional on states' fiscal performance, and calls to begin harmonising EU taxation, Van Rompuy's first tasks will be to pilot some of those tools into existence.